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Rupee extends losses, nears 73 against Dollar

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YSRCP leaders spreading lies on TDP, destroying Amaravati: Chandrababu Naidu

According to Naidu, Reddy has no faith in any religion but only indulges in theatrics to safeguard his vote banks.

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Amaravati, Sep 22 : Andhra Pradesh opposition leader and former Chief Minister N Chandrababu Naidu on Tuesday said YSRCP leaders are spreading false information about erstwhile TDP projects with a plan to destroy Amaravati capital city.

“The evil-minded YSRCP leaders were only spreading misinformation campaigns on TDP projects with a plan to destroy Amaravati Capital city,” alleged Naidu.

During an online interaction with senior party leaders and candidates from all the 175 constituencies, he claimed that the ruling party MPs were not fighting for the people’s issues and did not raise the minimum support price issue for farmers in their protests.

Naidu alleged that Chief Minister Y. S. Jagan Mohan Reddy is indulging in vote bank politics, and claimed that he is not condemning attacks on temples, dalits, BCs and minorities.

“The Chief Minister did not bother to visit one single temple and failed to give a strong warning to the perpetrators of these crimes,” he asserted.

According to Naidu, Reddy has no faith in any religion but only indulges in theatrics to safeguard his vote banks.

The TDP supremo claimed that multiple investigations against him were carried out in the past but none of them yielded any proof of wrongdoing.

“Even Reddy ordered many inquiries after becoming CM but he could not find fault with the TDP regime in the past 15 months,” he claimed.

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Every company regardless of size, is important for India: FM Nirmala Sitharaman

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Finance Minister Nirmala Sitharaman (File Picture)

New Delhi, Sep 21 : Finance Minister Nirmala Sitharaman on Monday stated in the Lok Sabha that any company whether it is big, small, micro, medium or nano is important for the country.

Saying that “my friends are the companies”, the Minister said under the Companies Act even MSMEs are registered and anybody who is registered under this act and if, unfortunately, comes for a liquidation has to have a solution.

“Your friend, my friend does not matter. All are friends of this country. Unless business is run by small, medium or big that kind of a job which we are talking about will not happen. So, solution is required for everybody,” the Minister said while addressing the Lower House while pushing for the passage of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020.

The Bill, which was passed by the Rajya Sabha on Saturday, seeks amendment in the Insolvency and Bankruptcy Code, 2016 and replaces the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 which was promulgated by the President on June 5 this year.

The ordinance had prohibited the initiation of insolvency proceedings for defaults arising during the six months from March 25 this year (extendable up to one year).

Simply put, no insolvency proceedings can be initiated by either the corporate debtor or any of its creditors for defaults arising during this six-month period beginning March 25.

The ordinance came in response to the Covid-19 pandemic, which had created uncertainty and stress for businesses for reasons beyond their control. It was also felt that during the Covid-19-induced lockdown, it may be difficult to find an adequate number of resolution applicants to rescue the corporate debtors who may default in discharging their debt.

In parliament registry, Sitharaman said this is among one of those Bills, now an Act, which come very quickly each time when the ground situation requires changes so that this becomes a robust law.

Giving detailed reasons behind amendment in the law, the Minister said the need of such an ordinance has never been contextual in last 100 years. “Such kind of atmosphere cannot be in the coming 100 years too.”

Hinting at the Covid-19 pandemic, the Minister said the dimension and the scale of the pandemic was obvious and therefore the government had to come up with an ordinance which suspended the application of three sections–7,9 and 10– of the Insolvency and Bankruptcy Code.

“We had to prevent any company which is experiencing distress because of Covid being pushed into the insolvency proceedings. And therefore we had to suspend these sections.”

The Minister said the entire approach that the government has taken is to immediately help companies with some relief and then look at the way in which the second phase can go on.

She said this Bill is the part of the second approach. And the third phase, Sitharaman said, could have some kind of resolution mechanism for those who are not able to survive and hand-holding in particular incidences.

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Lok Sabha passes the Insolvency and Bankruptcy Code (Second Amendment) Bill 2020

The Ordinance prohibits the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).

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The Lok Sabha has passed The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020.

The Insolvency and Bankruptcy Code allows a corporate debtor as well as its creditors to initiate an insolvency resolution process. The Ordinance prohibits the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).

A director or a partner may be held liable if despite knowing that insolvency proceedings cannot be avoided, he did not exercise due diligence in minimising the potential loss to the creditors. The Ordinance removes this provision for defaults in the above period.

Key Issues and Analysis

The suspension of the insolvency resolution process raises several issues. First, it prohibits resolution even in cases where that may be the best way to preserve the value of assets. Second, it removes the option of a debtor to avail of the insolvency process for restructuring. Third, it is unclear why insolvency proceedings against specified defaults have been prohibited forever.

It may be questioned whether a personal guarantor to a corporate debtor should undergo insolvency proceedings for defaults for which insolvency proceedings are not allowed against the debtor

HIGHLIGHTS OF THE ORDINANCE

The Insolvency and Bankruptcy Code, 2016 provides a time-bound process to resolve insolvency among companies and individuals. Insolvency is a situation where an individual or company is unable to repay their outstanding debt. In light of the COVID-19 crisis, the World Bank identified two key challenges for an insolvency framework: (i) need to prevent otherwise viable firms from prematurely being pushed into insolvency and (ii) increase in the number of firms that will not survive the crisis without resolution of insolvency.

In India, the threshold of default for initiation of insolvency proceedings was raised from one lakh rupees to one crore rupees. Further, regulations were amended to provide that the lockdown period will not be counted in the timeline for ongoing proceedings for certain activities. In this context, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 was promulgated on June 5, 2020. The Ordinance notes that COVID-19 has created uncertainty and stress for businesses for reasons beyond their control and it is difficult to find an adequate number of resolution applicants to rescue the corporate debtor who may default in discharging their debt.

Key Features Prohibition on the initiation of insolvency proceedings for certain defaults:

The Code allows the corporate debtor as well as its creditors to initiate insolvency resolution process. The Ordinance provides that for defaults arising during the six months from March 25, 2020 (extendable up to one year), no insolvency proceedings can ever be initiated by either the corporate debtor or its creditors.

Liability for wrongful trading:

A director or a partner of the corporate debtor may be held liable to make personal contributions to the assets of the company in certain situations. This liability will occur if despite knowing that the insolvency proceedings cannot be avoided, the person did not exercise due diligence in minimising the potential loss to the creditors. The resolution professional may apply to the NCLT to hold such persons liable. The Ordinance prohibits the resolution professional from filing such an application in relation to the defaults for which insolvency proceedings have been prohibited.

Bar on the initiation of insolvency resolution process for certain defaults

The Insolvency and Bankruptcy Code, 2016 (IBC) allows the corporate debtor as well as its creditors to initiate the insolvency resolution process. The Ordinance provides that for defaults arising during the six months (extendable up to one year) from March 25, 2020, no insolvency proceedings can ever be initiated by either the corporate debtor himself or any of its creditors. We discuss some related issues below.

Need for the complete suspension of the corporate insolvency resolution process

The Ordinance prohibits initiation of insolvency proceedings against defaults arising during the specified period. This raises the question whether a complete suspension is required. On one hand, there is a need to safeguard companies, which were viable before the pandemic and whose insolvency is temporary, from being prematurely pushed into insolvency. On the other hand, a complete suspension of insolvency proceedings may take away a distressed company’s opportunity to seek recourse under the IBC framework. For certain companies, the deferral of insolvency proceedings may lead to further deepening of their financial stress and the resultant loss in value.

The Ordinance also states that it is difficult to find an adequate number of resolution applicants during this period. This may increase the risk of liquidation of a company which could have been rescued by sale as a going concern in a normal situation. However, another possible outcome of an insolvency resolution process is debt restructuring where debt obligations are reorganised to resolve insolvency, but the company is not sold to a third-party buyer. In United Kingdom, for instance, the insolvency law was amended in June 2020 to provide certain new types of restructuring options for companies facing financial difficulty.

Further, it raises a question whether all defaults during the specified period need to be treated in the same manner. There may be defaults which were not induced due to COVID-19 related disruptions but are a result of distress in companies before the pandemic. That said, whether a default is induced by COVID-19 or not will be subject to interpretation and may lead to disputes which can result in increased litigation.

Corporate debtor is prohibited from initiating insolvency proceedings

The Ordinance prohibits the initiation of insolvency proceedings by the corporate debtor. The question is whether the corporate debtor should be prohibited from initiating insolvency proceedings. The corporate debtor may be better placed to assess whether the recourse under the insolvency framework is warranted. A voluntary and timely initiation of insolvency proceedings by an insolvent debtor could maximise the benefits for the debtor as well as creditors. Note that in countries such as Spain, Germany, and France, while creditor-initiated insolvency proceedings were restricted and the duty of the debtor to file for insolvency were relaxed, voluntary insolvency proceedings by the debtor have been allowed.

Insolvency proceedings against the specified defaults are prohibited forever

The Ordinance states that no insolvency proceedings can ever be initiated against defaults occurring during the specified period. This could result in a scenario where creditors are unable to hold the company liable for these defaults even after the company’s ability to repay has been restored. It is unclear why a debtor should be protected from the liability for these defaults even after its temporary adverse situation has been resolved.

Initiation of insolvency proceedings against the personal guarantor to a corporate debtor

Under the Code, insolvency proceedings can be initiated against the personal guarantor of a corporate debtor. This is an individual who provides a guarantee for the debt of a corporate debtor. While the Ordinance prohibits insolvency proceedings against the corporate debtor for the defaults occurring during the specified period, it does not disallow such action against the personal guarantor. The question is whether the personal guarantor should be held liable for defaults for which the original debtor’s liability itself has been relaxed.

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